|Starting Date||Friday, July 20, 2018|
|Closing Date||Thursday, July 26, 2018|
|Question Title||Liquidity Preference Theory|
Bonds market of Pakistan is well organized. There are different types of bonds in Pakistan like Government Bond, Municipal Bond and Corporate Bond. In 2015, total size of the bonds market in Pakistan was 6.528 billion US dollars. Government bonds share was 82.87% which is 4.4% of GDP while corporate bonds share was 17.13% which is 0.90% of GDP. Government Bonds are consisting of Market Treasury Bills, Pakistan Investment Bonds, Federal Investment Bonds, US Special Dollar Bonds and Sukuk. Corporate Bonds are consisting of Commercial Papers and Term Finance Certificate. Pakistan Investment Bonds were published first time in 2003 and amounted 228.665 billion rupees. These bonds were issued in multiples of 100,000. Tenure of these bonds was 3,5,10 and 20 months. Interest rate was 11.25% to 13.75%.
Suppose rate of interest of Pakistan Investment Bonds fall down. Keeping in view the concept of liquidity preference theory, what the investors should do in this condition i.e.; either he should buy more bonds or should keep more money for speculation? Explain logically.
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